Monday Macro View: Top 5 Reasons Crude Prices Are Ascending – and the recent Middle East tension is only one of them!

By Osama Rizvi and Avik Chowdhury

Over the past month, West Texas Intermediate (WTI) crude has surged by nearly 15% , between 16th May to 12th June. The sharpest gains were recorded in the 72 hours bracket following reports of Israeli airstrikes on Iranian infrastructure , sending markets into a risk-on frenzy. But while this geopolitical flashpoint triggered the final leg of the rally, it is far from the only factor in play.

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Beneath the surface, a complex web of macroeconomic shifts, supply-side constraints, and faltering diplomatic breakthroughs has steadily supported oil prices. From OPEC+ under-deliveries to the reconfiguration of global tariffs and renewed fears of tighter Middle Eastern supply, the market’s bullish momentum was already well in motion.

Below, we outline 5 key drivers behind this dramatic rebound in crude.

1. Geopolitical Flashpoint: Israel–Iran Escalation

The most immediate catalyst has been the sudden spike in geopolitical tensions between Israel and Iran. On June 10, 2025 , reports emerged of Israeli airstrikes targeting key Iranian military assets. Within hours, oil prices spiked by over 6% intraday , reflecting market fears of potential disruption to Middle Eastern oil flows through the Strait of Hormuz, which handles ~20% of global oil shipments .

Source: NBC NEWS - DATA GRAPHICS

This event alone added approximately $6–$7 to the barrel in less than 48 hours, driving WTI from $70.50 on June 10 to $76.69 by June 12 . While the event was sudden, the geopolitical risk premium had been quietly building for weeks amid tit-for-tat rhetoric and proxy activity across the region.

2. U.S.–Iran Diplomacy Fails to Yield Progress

Another underappreciated factor is the ongoing failure of U.S.–Iran negotiations on nuclear and sanctions relief. Hopes had lingered in early 2025 for a partial agreement that could bring 500,000 to 1 million barrels/day of Iranian oil back to global markets. But by mid-May, talks had stalled completely, with both sides hardening positions.

Markets had partially priced in a diplomatic breakthrough; its failure acts as a tightening force on expected supply. In fact, Iranian crude exports to China fell . This not only removes a bearish pressure but heightens the geopolitical risk premium, compounding the effects of point #1.

3. U.S.–China Tariff Pivot Adds to Strategic Commodity Repricing

On June 11, 2025, former President Donald Trump announced that the U.S. would implement a “permanent 55% tariff regime” on a broad range of Chinese imports — including industrial machinery, and strategic tech components — as part of a new conditional trade framework. The move replaced the previously fluctuating 145% tariff ceiling, signaling a shift from punitive trade war tactics toward a more resource-focused industrial policy.

While the announcement was not a classic easing, markets interpreted the new regime as clarity after years of tariff volatility, and a sign that supply chain restructuring could accelerate. More importantly for crude, the new framework includes provisions to expand U.S. energy exports to Asian partners seeking supply alternatives to China, potentially reshaping long-term demand patterns.

WTI reacted with a modest gain, rising from $73.12 on June 10 to $74.85 on June 12 ( +2.4% ) as traders recalibrated expectations around global trade flows and strategic energy alignment. The geopolitical tone — while hawkish — contributed to the narrative of U.S. production optionality regaining market share.

4. OPEC+ Under-performance : Supply Not Meeting Rhetoric

Despite announcements of production continuity, OPEC+ members have not delivered output volumes at claimed levels. Analysis of seaborne oil exports from Saudi Arabia and Russia reveals that combined flows were down month-over-month in May, as per Kpler data. Meanwhile, refinery intake in Asia remained flat, signaling a quiet tightening. Markets are now recognizing a divergence between announced quotas and actual flows. This credibility gap has renewed the belief that the supply ceiling is lower than projected. WTI began rising steadily from $62 on May 13—just after early signs of this supply drop—adding fuel to the broader rally.

5 . Falling inventories

U.S. crude inventories are flashing red. At Cushing, Oklahoma—the key delivery hub for CME WTI futures— stocks just dropped to 23.5 million barrels , the lowest seasonal level in a decade, compared to a ten-year average of 35.1 million. At the same time, wildfires in Canada are disrupting upstream supply, and U.S. refinery demand remains exceptionally strong. This further created an air of strong demand (whereas the reality is the opposite).

What is the latest?

In the latest round of attacks energy infrastructure seem to have taken a hit as well. Shahran oil depot, that has 11 tankers and provides around 1.4 mbpd of oil domestically was hit and Shahr Rey oil refinery processes 225,000 bpd was seriously damaged.

Israel's aerial strikes also hit the South Pars gas field , located offshore in Iran’s southern Bushehr province. As the world’s largest gas field, South Pars supplies about two-thirds of Iran’s domestic gas. Iran shares the field with Qatar, where it is known as the North Field. According to the semi-official Tasnim News Agency , the attack caused significant damage and fires at Phase 14’s natural gas processing facility , and halted production at an offshore platform producing 12 million cubic meters of gas per day . Also located in Bushehr province, Fajr-e-Jam, facility is key to Iran’s domestic power and fuel supply, especially in the already strained southern and central provinces. The refinery was also hit. The disruption could deepen domestic energy crisis. Government figures suggest that power outages cost Iran’s economy around $250 million per day . But all of these developments, so far, will not have any significant impact on oil markets.